Negotiating After Auction

Regardless of the strong demand for properties, it is extremely common for a number of properties to pass in at auction. This could be as a result of a number things, like unrealistic price expectations, insignificant interest in the property, the timing of an auction and many other reasons. Nevertheless, it doesn’t mean the property is a disaster.Property Passed In? Tips On Negotiating After Auction

 

Figures have shown that in Melbourne, roughly 15 to 20% of total auctions pass in each weekend. Whilst a number of properties sell soon after the auction, it is quite common for the property to be listed for a private sale.

 

Regardless whether you are a seller or a buyer, it can be formidable to negotiate on a price of a property that has not sold at auction.

 

Luckily, if you are a potential buyer of the passed in property, you are sitting in the throne to negotiate, and if you are the seller, then you are close to closing a deal on the property.

However, remember that at this point of time neither the buyer or seller has the better of the other, which comes back to the main question – what price should the buyer put forward and what price should the seller accept?

 


 

Many of us will say – why don’t we pay for what the property is actually worth? However, the fair market value of a property can be expresses as the agreed price between the buyer’s willingness to pay and the seller’s willingness to pay, which will eventually result in an equilibrium price.

 

Many psychological factors come into play when selling and buying a property, which could potential affect an individual’s ability to negotiate and act rational, in order to secure the perfect deal.


Emotions Of The Buyer & Seller

It has been said that sellers hold greater value to things that they own. This can obviously be a problem when trying to negotiate a reasonable price with a seller.

Buyers also face similar pressures when bidding at auction. It’s common for people to be extremely nervous, it’s normal for emotions to take over and bad decision to be made. This is one of the biggest factors of the realestate prices moving above a normal market value. 

It has also been said that if you try to negotiate too hard the seller will consider walking away from negotiation, however if you don’t negotiate hard enough it may result in overpaying for a property. The emotions of a buyer and seller can severely impact the decisions you make, causing a negotiation breakdown.

 


Over Coming The Problems

To overcome these problems, it is highly recommended you research to understand a property value. The knowledge gained gives the buyer boundaries of price or market value. It also maps out a negotiating path, how far a buyer should go when it comes to price and negotiating after auction. 

The below points are the areas of research every buyer should conduct:

  • The suburbs offer and popularity in the market place. 
  • Comparable homes that have sold in the last 6 months. 
  •  Agent selling styles, are there many auction or is everything selling by private treaty.
  •  What is the condition of the home. 

Negotiating After Auction has passed in can be difficult, especially if it’s your first time. Our buyer’s advocates recommend using a professional that has done the process many times over. 

If a buyer chooses to do this on there own, it’s recommended to do the above research and know stick to an auction bidding plan. The plan must have a starting point (on price), bidding increase amounts (eg: offer only $10,000 increases) and a walk away point if the price exceeds yours plan. Remember, no emotions.

More info on negotiating on property price. 

 

When signing a contract of sale remember:

Inclusions and exclusions: A contract of sale might not include what a buyer thinks is standard or a common item when purchasing a home or investment. In most cases common items that are not included unless specified are curtains, some light fittings, dishwashers, water takes, out door decorative items (anything that is not secured/fixed to the property). Buyer’s agents ensure a contract of sale is filled in correctly to avoid disappointment or financial loss on settlement day

Vacant possession or subject to existing tenancies?: It’s important to realise a buyer can inherit a tenant upon settlement if a contract of sale is not perused correctly. If there is currently a tenant in place the ‘Subject to existing tenancies’ box may well be checked in the contract of sale. Assuming vacant possession could legally be impossible if you’re planning to move in after settlement.

Finance Clause: These are not allowed while buying under auction conditions. If your negotiating after auction there is definitely a possibility you can use this as a safety net. 

Your entitled to a final inspection – This is the buyer’s last chance to view the property prior to settlement. Making sure all appliances are in working order, sellers or vendors have left the property vacant in good clean condition. A good buyer’s advocate will advise what needs to be done if things are not as they should be.

Negotiating After Auction.

 

In Victoria, bidding at auction is a common occurrence, it seems like most property sells under the hammer but what happens if a property doesn’t sell at auction and gets passed in?

 

This is a scenario that a buyer’s agent actually prefers to work in because it creates the opportunity for negotiating directly with the real estate agent with no other bidding competition potentially upsetting or disrupting a negotiation. 

 

Prior to attending auction, a buyer’s agent will have done his homework. He would have inspected the property at large as well as a number of comparable properties in the area. Next, he would compare this to homes that have sold in the last 3 to 6 months. This helps him to design an auction bidding plan.

 

Come auction day, an experienced buyer’s agent would capitalise on a failing auction. Typically, either by bidding before an auction closes or approaching the agent directly after the auction to enter into a private negotiation.

This is where a buyer’s agents’ experience and homework on a property tie in together to win their clients a great deal. For more information on this topic, check out our page on ‘Negotiating after auction.’ https://wiserealestateadvice.com.au/property-passed-in-tips-negotiating-auction/

 

 

Auction FAQ’s:

 

When you’re new to the world of buying property, it is common to have a series of questions about a process that doesn’t offer much information. At Wise, we have put together some of the most commonly asked questions when it comes to auctions.

 

Has the seller set a reservice price? At every property auction in Melbourne, the auctioneer usually takes a pause during a live auction to consult the vendor. This is to discuss if the pre-auction reserve has been satisfied. At this point, if the vendor gives the agent the green light, the property is on the market and the highest bid thereafter will purchase the property. 

 

When is the property sold at auction?

The sale takes place at the time the successful bidder signs a legally binding contract and pays a negotiated deposit for the property. This is known as ‘Exchange of contracts.’

 

Do I have to pay 10% deposit on the day?
There is no law stating that a 10% deposit is required. Rather, a negotiated amount between the seller and buyer. Property law does state that a deposit must be something of value, usually currency but could be anything the seller accepts, for instance, an expensive watch, a car or painting.

 

On auction day, successful auction bidders must sign the contract of sale, this will summarise settlement terms, deposit amount, settlement date and amount paid for the property. All of this is negotiable and using a buyer’s agent could leverage these terms to close a negotiation. 

 

TIP: Real estate agents love collecting a 10% deposit because it covers their costs of advertising and commissions, regardless of if the buyer settles on the property or not.

Can I submit an offer prior to auction?

This is usually up to the seller and their representative the real estate agent. There is a great change of a private negotiation if the auction campaign has been slow.  Hence a high chance of a pre-auction offer being accepted.

 

A buyer’s agent prefers to operate in this type of scenario as it favours their clients offer by reducing the competition – otherwise known as a private negotiation. For more information on this topic, you can read our article on Making an Offer on a House.

 

What is the price of the property if it’s selling at an auction?

This issue is one of the biggest problems in real estate and unfortunately real estate agents leverage this advantage.

 

Why is it so hard to set a price? No two properties are the same hence their price can vary. Sometimes a little but most of the times, a lot. Factors like schools zones, land size, quality of interior finishing and size of floor plan need to be taken into consideration.

 

In 2017 the state government made efforts to establish laws and stop agents from underquoting, it’s still very common for properties to sell well above their quoted price. More information on under quoting.

At Wise Real Estate Advice, our buyer’s agents give clients a detailed market appraisal based on similar sales that have been made within the last 6 months. The price will factor in the market value and what the property should sell for under certain auction conditions.

 

Auction lingo confuses me, what do they mean?

First call, second call, vendor bid, refer the bid? Check out our page on understanding auction speak.

 

Is there cooling off, building inspection or subject to finance clauses allowed at auctions?

 

The reason why sellers and real estate agents love auctions is because the result is final, in other words ‘unconditional’. This means the responsibility falls on the buyer if:

 

  • The property is faulty. It is up to the buyer to organise a building inspection prior to the auction date.
  • If you have over-paid for the property and the bank will not offer you finance. It’s wise to have an unconditional bank pre-approval.
  • If you change your mind, winning an action means you have purchased the property, no cooling off period applies.

 

If for whatever reason you choose to not proceed with the sale, at minimum you will lose your initial deposit. The worst-case-scenario would be the seller suing you for further loss or damages.

 

How many vendor bids can an auctioneer make?

An auctioneer can make as many bids as they seem necessary to push buyers above the vendor’s disclosed reserve price. At Wise Real Estate Advice, our buyer’s agents frequently negotiate below a vendor bid if it’s deemed to be unreasonable. 

 

Do I have to pay the real estate agent if I win the auction?

It’s illegal for a real estate agent to accept two commissions when selling one property. The real estate agent is paid exclusively by the seller to advertise and sell the property, hence there is no need for a buyer to pay the agent.

If the buyer chooses to engage a professional bidder or buyer’s agent to represent them at action, then the pre-arranged fee is settled upon prior to the auction. More information on buyers agents fees.

 

  


Let A Professional Do The Work For You. 

Buyers Advocate offer services to do the whole process for you. From property search, market value to buying the property, this includes negotiating after auction! 

Wise Real Estate Advice, take on a number of strategies to build an accurate and evidence based report in order to negotiate on behalf of a person to try and secure the best property, whether it is at auction or a private sale.

By Mark Ribarsky

Help On Negotiating? Have Our Buyer’s Agents Call You.

For an obligation-free conversation, contact Wise Realestate Advice on 1300 009 473 to discuss how their buyer advocates can turn your property goals into a reality

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